OLB Group, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter report. The company provides payment processing and merchant software, crowdfunding services, and began cryptocurrency mining during 2021.
Financial performance and position
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Revenue | $16.71 million | $9.77 million |
| Operating loss | $4.76 million | $0.73 million |
| Net loss | $4.98 million; $0.63 per share | $1.78 million; $0.31 per share |
| Cash and working capital | $3.47 million; $1.83 million | $3.82 million cash |
| Operating cash flow | $(3.51) million | $(0.33) million |
| Investing cash flow | $(25.66) million | $(0.15) million |
| Financing cash flow | $28.82 million | $3.79 million |
| Total liabilities | $3.32 million | $8.63 million |
Revenue increased 71.1%, principally due to higher merchant processing activity and the merchant portfolio acquired in the fourth quarter. Transaction and processing fees were $15.81 million, compared with $8.36 million. Cryptocurrency mining contributed $304,004; the company reported mining 10 Bitcoin during the year. Monthly subscription revenue declined to $464,327 from $1.32 million.
Processing and servicing costs rose 124.5% to $13.48 million, exceeding revenue growth. Operating expenses totaled $21.48 million, and operating margin was approximately negative 28.5%; net margin was approximately negative 29.8%. Interest expense fell to $116,737 from $1.04 million. The company also recorded a $236,231 gain on forgiveness of its PPP loan and $333,158 in litigation expense.
Cash used in investing included $9.60 million for property and equipment and $16.07 million for intangible assets. Financing included $28.38 million from common stock and warrant sales, $8.09 million from warrant exercises, and $7.65 million of debt repayment. The balance sheet reported no notes payable at year-end, but included a $2.0 million merchant-portfolio installment obligation and $406,346 of lease liabilities. Current assets were $4.89 million and current liabilities $3.05 million.
Material changes and notable transactions
- In November 2021, OLB acquired a CBD and other merchant processing portfolio for $20 million: $16 million paid at closing, $2 million payable within six months, and $2 million contingent on an attrition adjustment. The acquired portfolio was recorded at $18 million before amortization.
- OLB raised approximately $22.9 million net in a November private placement and $6.1 million net in an August 2021 offering. Shares outstanding increased to 11,984,396 at year-end from 6,170,054 a year earlier; additional warrants and options create potential dilution.
- The company repaid its GACP term loan in March 2021 for approximately $7.7 million. The PPP loan was forgiven in October.
- OLB granted options valued at approximately $4.5 million in exchange for an exclusive natural-gas supply agreement for its mining operations.
- After year-end, OLB agreed to acquire Crowd Ignition, a crowdfunding software company owned by CEO Ronny Yakov and significant shareholder John Herzog, for 1,318,408 OLB shares valued at $5.3 million for the transaction. This related-party acquisition closed under a January 2022 agreement.
Outlook, risks, and unusual items
Management gave no quantified revenue or earnings guidance. It expects to develop OmniSoft, expand its PayFac model, and grow cryptocurrency operations, while acknowledging there is no assurance these initiatives will reduce its dependence on eVance. DMINT planned to scale mining capacity toward 500 petahash per second by the end of 2022, conditional on initial results.
Management stated it believed liquidity was sufficient for at least twelve months after the report, citing operating trends and capital raises. However, the audited cash flow statement reports cash used in operations of $3.51 million; parts of the MD&A describe that amount as cash used, while another passage incorrectly calls it cash provided. The cash flow statement shows year-end cash of $3.47 million, down from $3.82 million.
- Management reported material weaknesses in internal control over financial reporting, including deficiencies in risk assessment, formal accounting policies, and documented control design and operation. It concluded internal controls were not effective at December 31, 2021; remediation was expected over the following nine to twelve months. Disclosure controls were separately assessed as effective.
- The auditor issued an unmodified opinion on the financial statements and highlighted intangible-asset impairment assessments as a critical audit matter. Goodwill and intangible assets totaled $28.9 million; valuation depends on projected cash flows and discount-rate assumptions.
- The company disclosed an adverse litigation judgment that it accrued and appealed; the appeal outcome was unknown. It also disclosed potential successor-liability exposure relating to the 2018 asset acquisition.
- Key risks include reliance on eVance for revenue, merchant attrition and chargebacks, payment-network and financial-services regulation, cybersecurity and service interruptions, acquisition integration, and cryptocurrency volatility, regulation, power availability, and operational risks.
- At year-end, $3.22 million of cash exceeded FDIC insurance limits. The filing also notes that the CEO owned or controlled approximately 30.4% of voting shares, and that the CFO worked part-time.
Investor facts to verify
- Reconcile the conflicting MD&A wording about operating cash flow with the audited cash flow statement and assess ongoing cash burn and liquidity.
- Review the acquired merchant portfolio’s retention, realized revenue and margins, remaining purchase payments, and any attrition adjustment.
- Assess whether the company can improve operating profitability as processing costs and amortization rise, and whether subscription revenue can recover.
- Track remediation of internal-control material weaknesses and the assumptions supporting the $28.9 million goodwill and intangible-asset balance.
- Evaluate dilution from outstanding warrants, options, the Crowd Ignition share consideration, and executive equity compensation; also review the related-party acquisition terms.
- Check the litigation appeal, cryptocurrency mining deployment and economics, and the company’s progress against its stated expansion plans.